The Budget is just a day away. There would be so many things to look at from balancing economic growth and inflation to twin deficits. What are your expectations
The Budget is going to be challenging. But at the same time, it has become a non-event. To the extent that for this year, the FM has got both, the fiscal challenge and balance of payments challenge. People are looking to see how he is going to balance these numbers. In our view, he has definite options to bring back some of the investment-linked incentives and the country needs them because to a large extent investments in gross capital formation is quite low and further heading down. It will help him get additional revenues and at the same time, it will help jump-start the investment slowdown that we are seeing in the country. So these are some of the things we are expecting.
Are you expecting any announcements specific to the capital market
We believe that capital market reforms are very critical as many divestment issues are scheduled. We expect some of the discordance between commodity and equity market coming down. The FM will have to provide for making it easier for customers to be able to come and buy a stock. Some element of engagement around the implication of STT and capital gains, which varies for different instruments within the same industry, would be critical. Today we find only commodities doing well because STT-like deduction is not there in commodities. Other way, would be to increase the limit on RGESS.
It is believed that the investment scenario needs to be made conducive for investors
We expect a lot of simplicity in investment norms (simplifying KYC norms) for individuals and small retail investors below a particular category. There are some changes we expect on some of the investment benefits such as initiatives in infrastructure and life insurance because retail investor money needs to get channelised into long-term instruments. Today, retail participation is very low and investments have gone into gold and real estate. It is not coming into FDs or equity markets. Whatever he can do to channelise that into the capital markets for a long-term is going to be very helpful. He could look at some form of long-term investment like long-term infrastructure, long-term equity, or inflation-linked debentures.
What is your long-term investment outlook on Indian equities Which sectors would you put your money
We are positive on equity markets from a long-term view subject to some of the global conditions and some domestic initiatives we take. We have already seen $8 billion coming in the first 8-9 weeks. We do not believe this number is going to change, unless we do things badly. Otherwise money is available all over the world and risk on is very much there. We continue to look at FMCG, banking especially private banks, and pharmaceutical as top-down sectoral stories. We would like to add on to other sectors like infrastructure and capital goods, but we want to see how certain policy actions pan out. We also believe in the bottoms-up approach of stock picking at this point in time because of valuations advantage.
But are valuations a cause for concern
From the valuations point of view, Indian markets are trading around 14-15x one-year forward earnings. We do not see a big valuation upside but we do see a big earnings upside. For the latter to happen and for us to see 20-25% increase in equity markets, we need policy changes and we hope these policy changes happen in the budget. We believe, the FM has enough levers in his hands to make adjustments. If we do have a good budget, we foresee Indian equity markets as the best asset class to invest in this year.